China: Investing in human capital

Human capital spending is needed to reshape China’s growth engine. The action can start at an early age.

In thirty years of reform and opening up, China’s economy has achieved to sustain a nearly double-digit growth on average, and increase the GDP per capita from $190 in 1978 to $5,432 in 2011. In three decades, China has entered the group of middle income countries, and in 2010, surpassed Japan as the world’s second largest economy.

China’s economic success is largely due to reforms that created favourable incentives and unleashed productive forces. A favourable demographic structure and adequate labour supply also contributed, as did a high level of capital accumulation and the implementation of an exportoriented economic strategy.

However, some of the factors that have been supporting China’s rapid economic growth are changing. China is now facing a rapid population ageing, overinvestment is creating excess production capacity and the demand from world markets is becoming sluggish. Can China’s growth miracle still continue? Can China successfully enter the ranks of high income countries? The answer lies in China’s current and future ability to have higher and more equitable investments in human capital.

In the past thirty years, China’s level of human capital has improved sharply, but there is still a big gap with developed countries. One of the particularly acute challenges China faces is that of early childhood development. For example, between 1980 and 2010, China’s average life expectancy rose from 66 years to 73.5 years, and the average number of years of schooling increased from 3.78 to 7.55 years. Between 1990 and 2010 the prevalence of stunting growth among children under age 5 declined from 33.1% to 9.9%, and the rate of anemia among rural children between under 24 months decreased from 38.7% to 20.8%. These achievements are very significant, but still insufficient to support the need for upgrading the industrial structure and economic restructuring in China’s future.

Moreover, these national average data obliterate the gap existing between urban and rural areas, yet this gap is difficult to ignore. A survey conducted by the China Development Research Foundation found that in 2009, the prevalence of stunting among 6 to 11 months of age children in poor rural areas was 3.3 times the national average; in Yunnan province’s Xundian County, children of the same age showed a stunting rate 5.7 times higher than the national average; In both Qinghai province’s Ledu County and Yunnan province’s Xundian County, the rate of anemia of the children 12 to 23 months of age were respectively 3.9 and 3.2 times higher than the national average. The Chinese government has in recent years recognised the importance of human capital investment, leading to a substantial increase in investments in education, health care, student nutrition and early childhood development. But for China, a country with significant different regional disparities, more funding does not suffice to improve human capital substantially and equitably. What is needed even more are innovative practices in supporting systems and policies. For example, the Chinese government has committed to ensure that 70% of children have access to three years of early childhood education by 2020. But a large number of children in remote and poor areas will be blocked outside the doors of regular kindergartens.

That is why, in poor and remote areas of the western region, the China Development Research Foundation has been conducting a policy experiment that aims at providing affordable preschool education through innovative practices, which were partly inspired by discussions around OECD’s “Starting Strong” series. This “Go Teach” experiment involves teachers that rotate from one village to another during a week of school to provide pre-school education for poor children who live in the vicinity. This mobile education system has allowed the local young pupils to develop cognitive and language skills close to those of children who have access to the regular kindergartens in China’s cities and towns. It will help to close the gap in early childhood education, which if not addressed, will affect the development of China’s future human capital and fuel existing inequalities.

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